Blockchain In Agribusiness: Plenty Of Benefits But Commercialisation A Few Years Away

Key View: The agribusiness sector's interest in blockchain is growing rapidly with trial programmes multiplying and companies devoted to the technology emerging quickly. The benefits of blockchain for agriculture are extensive from farmers to trading and food companies, especially in terms of supply chain efficiency and product traceability. However, the technology remains immature at this stage and is still a few years away from feasibility at scale with considerable challenges to overcome to make it a reality.

Discussions around the potential benefits of using the blockchain technology in agribusiness are growing, while actual trial and pilot programmes have started multiplying in recent quarters. As a result, in this article, we identify the benefits of such technology for the sector, have a look into ongoing or recent trials and highlight the challenges.

Blockchain is a way of storing and sharing information on a distributed shared ledger, without the need for intermediaries or third parties to make transactions. Each transaction is unalterable, traceable and secure, with blockchain using a public/private key model of cryptography and allowing users to monitor all transactions in real time. On paper, the benefits of blockchain technology are decentralisation, cryptographic security, transparency, and immutability. Blockchain in agribusiness will also require the adoption of a number of other 'Agtech' components to allow for real-time traceability including, for example, IoT devices (satellite data analytics of plantation, sensors along the supply chain among others).

We have identified four benefits that blockchain will bring to the agribusiness sector, and find significant overlap with the potential benefits to the Food & Drink sector.

As a more distant benefit, blockchain could greatly improve land registry efficiency in developing markets, which would support access to credit and, therefore, farm investment.

One of the most important features of blockchain for agribusiness is traceability and supply chain transparency, and it will impact the sector at the farm level, at the trading level, as well as downstream at the food distribution level. For farmers, traceability is likely to lead to cost reduction, as it could help improve the management of disease outbreak or food contamination at the farm level. The origin of a contaminated product could be quickly and precisely identified, and taken care of. This would avoid the mass recall and destruction of farm products and the mass culling of livestock which is currently being resorted to as a precautionary measure.

Increased traceability and a better trust in the origin of the product could also mean farmers of speciality products (organic agriculture among others) could be better remunerated. In general, the reduction in the number of intermediaries and the development of farm-to-table and local sourcing initiatives enabled by blockchain could also increase farms' profits. FoodShed and GroceryX are startups building on blockchain to support farm-to-table products.

Blockchain could also speed up payments to farmers and reduce payment uncertainty. Historically, growers have carried the burden of counterparty risk and a lack of payment security when making a delivery to a buyer or storage site. Blockchain could help change this dynamic and instead match the transfer of title to the payment.

A more distant yet potentially high-impact benefit of blockchain for farmers in developing countries could be the development of a fully transparent land registry. Unclear, customary land records in developing countries are a key issue and greatly hinder access to credit and farm investment. The creation of a transparent land registry would greatly improve much-needed farm financing and, in turn, investment and yields. However, this would require a mass and global adoption of blockchain which is a distant prospect.

Commodities Trading: Optimising International Trade, Reducing Processing Time And Costs

Commodities trading involves very complex administrative tasks and a large number of players, including suppliers, trading companies, customs administrations, food producers, shipping companies and banks. Blockchain transactions for commodities with transparent and immutable digital contracts could help reduce many shortcomings and inefficiencies in the sector, as it could lead to enhanced information for the players involved, greater traceability and proof of origin, improved stock management, certainty around the conditions of the contract, less paperwork and reduced transaction risks and uncertainty.

2018. An experiment that combined a custom private blockchain, smart contracts and a geotracking IoT framework to facilitate end-to-end movement of the almonds. Using the information provided by four IoT devices inside the container, transaction partners could track cargo location in real time and view real-time cargo data (temperature, humidity, etc). The information was accessed through the blockchain platform, making it impervious to manipulation.

Tracking, delivery and payment of a batch of oats within Australia

CBH Group, AgriDigital

2017. The companies ran two tests, one to make delivery and payment of oats, and the other to track the movement of organic oats from farmgate to the retail consumer. The digital title that was generated for the transaction was developed on a private Quorum network based on AgriDigital's DLT solution. The companies hope to launch a commercial solution in 2019.

2017. The trade - done via the Easy Trading Connect (ETC) blockchain prototype - included a full set of digitalised documents (sales contract, letter of credit, certificates) and automatic data-matching, thus avoiding task duplication and manual checks. Participants claim time spent on processing documents and data was reduced fivefold. Other benefits include the ability to monitor the operation's progress in real time, data verification, reduced risk of fraud, and a shorter cash cycle.

Shipping cotton from Texas, USA to Qingdao, China

Brighann Cotton, Commonwealth Bank of Australia, Wells Fargo

2016. Private blockchain and smart contracts enabled with IoT geolocation technology. The trade involved an open account transaction, mirroring a Letter of Credit, executed through a collaborative workflow on a privately distributed ledger between the seller (Brighann Cotton (US)); the buyer (Brighann Cotton Marketing Australia); and their respective banks.

The transparency allowed by blockchain will help food companies address rising consumer awareness and demand for higher quality and sustainable products. The technology can be used for improved labelling of products, with more information available to consumers, allowing consumers to check if products labelled as organic, locally sourced, cruelty-free and sustainable are, in fact, what they claim.

Currently, validating these claims is left up to companies such as Fair Trade or Where Food Comes From, who verify all aspects of products from the beginning of the lifecycle. Blockchain would add to this by amplifying good behaviour of ethical companies and removing those making false claims through the tracking systems. This will increase trust among consumers if they are able to trace every step of the supply chain through a blockchain that cannot be tampered with and would offer more accuracy than the third-party verification. Blockchain will also help to fight against food fraud, as mislabelled food is still an ongoing problem in the industry.

Reducing Food Waste And Improving Global Food Security

Blockchain could also help reduce food waste, an endemic issue which is receiving increasing regulatory and public attention. A 2015 study by the FAO found that globally, 1.3bn tonnes of food is lost or wasted every year, amounting to about one-third of all food produced for human consumption. Given the overall consumer trends towards sustainable food and concern about overuse of resources increasing greenhouse gas emissions, reducing waste will be an ongoing theme over the coming decade in our view.

The development of a direct farm-consumer relationship, the reduction of supply chain processing time, real-time tracking of product conditions would help to mitigate some of this wastage. These efficiency gains would go hand-in-hand with ongoing yield growth and will become necessary in the future to maintain a satisfactory level of food security at a time when expanding the arable land is facing clear constraints.

Blockchain Could Help Reduce Global Waste

Global - Food Waste By Commodity Per Year (% of quantity produced, 2015)

Source: FAO

Blockchain Is Still At Trial Stage, Commercialisation A Few Years Away

Overall, blockchain remains a rather immature technology and it is generally considered that it is still three to five years away from feasibility at scale. Moreover, the strategic case for agribusiness players to invest in the technology in order to profit from it has not been proven yet. We note that most of the applications performed by established agribusiness and food companies over the past couple of year were trials or are still at the stage of pilot programmes. A number of startups have emerged around the world in this space and certain key industry players have also conducted trials and invested in the technology ( see table below). Most of the trials have been limited in scope, and only involved performing the transactions for an individual contract across borders, or for one individual commodity at the national level ( see table above).

Blockchain For Agribusiness And Food - Players Involved

Note: This list is not exhaustive and is meant to present examples of companies involved in Agribusiness and Food blockchain initiatives. Source: Fitch Solutions

Established agribusiness and food companies that are experimenting with blockchain

Too Complex To Implement? - The most important barrier preventing blockchain technology from flourishing is that it requires the participation of all actors in the supply chain for it to work. Every transaction needs to be registered from farmers to distributors, packagers, producers, grocery stores and restaurants, in order to facilitate the advanced tracking and transparency features that will transform the industry. If one of these actors does not participate, then the system cannot fully develop.

Is The Technology Scalable? - A blockchain transaction may be relatively simple to execute, but implementing millions of them could become much more costly or time-consuming than previously anticipated. The computing power to do so would also be phenomenal and would take up huge amounts of energy, potentially making the whole enterprise more expensive than it is worth to track a head of lettuce that retails for a few dollars. The scalability of this technology is a few years away at present, so it will be some time before we see blockchain rolled out.

Greater Transparency Means Greater Scrutiny - While higher transparency will help to improve production processes, agribusiness and food players are also likely to face greater scrutiny. Disclosing production and supply chain details of food products is likely to bring more profits for higher-end products, but the push towards greater transparency enabled by blockchain and other Agtech may backfire for mid-range or lower-range products which strike a delicate balance between cost-control, product affordability and poorer producing processes in terms of animal welfare, and use of chemicals, antibiotics, growth hormones or pesticides.

The Question Of Trust And Security - For blockchain to be effective, it still relies on the accuracy of information entered into the system, at a farm level and throughout the value chain. The necessary input of data will, therefore, always raise the issue of trust. Connecting and securing physical goods to a blockchain also requires enabling technologies like IoT. This raises questions around security as while the blockchain record might be immutable, IoT devises can still be tampered with.

Competing Blockchain Technologies - Adding further complexity to this will be the competing types of blockchain technology and platforms that are trying to make this a reality. If platforms do not interact with competing platforms, this may require each supplier to have multiple blockchain systems for different clients, creating confusion and increasing the risk of error.

Absence Of Regulation - Given the early stage of development, it is impossible to predict what the most useful information will be to store on a blockchain ledger and how this might evolve over time. For smallholder farmers in remote regions, choosing between a myriad of competing platforms that boast different benefits and standards will be a serious challenge. This will be complicated for all the other actors in the supply chain too, given the relative unfamiliarity with blockchain at present.